Loans In The Workplace
Correspondent | Monday June 13, 2016 15:05
The concept presented was that this would simplify matters for the employees if the repayments could be drawn from the staff members’ salary. The employee would not have to worry about visiting the lender every month the pay the premiums due.
Benefit or Disadvantage
We need to consider all factors that may come into play in this situation. Remember, if something sounds too good to be true, it is! Let’s take a closer look.
Secured vs. Unsecured Loan
Some lenders may offer you lower interest rate as the loans are secured by your Employer’s ability to deduct the repayment direct from your salary with your consent. You may ask questions to evaluate if this work place loan being offered is at a reduced interest rate.
Read the T&C’s and Shop Around!
As this loan was through Freddie’s work, he’d assumed that the terms and conditions would be regulated by his employer. When he borrowed the money he didn’t ask for a contract or a written copy of the loan terms. We know that before we borrow money we must look carefully at the T&C’s. If Freddie had ‘shopped around’ for his loan he may have found one with a lower interest rate.
Legitimacy
Is this a legitimate loan provider? Is the loan provider registered with NBFIRA? How are they connected to the Employer?
What Is In It For The Employer?
What motivation could Freddie’s Employer have to welcome loan providers and further debt into their work place?
“Financially stressed workers are less focused at work
and are more often absent fromwork
Could there be a financial benefit to the Employer by means of commission or something similar?
Confidentiality
Ask yourself, do you really want your Employer knowing all about your financial situation? Their concern in your income should cease once they have paid you your monthly salary. By you allowing these debts to be deducted from your salary makes your Employer your debt collector. How will you answer to them when something goes wrong and could this possibly affect your employment with them in the longer term
?
Are Salary Deductions Legal?
The Employer may only deduct sums of money from your salary that are specified in the law. Commonly this is reserved for items such as PAYE.
Employers are required to have written permission from the Employee to deduct loans from your salaries. The only exception to this rule is if a court order has been issued to your Employer as a garnishee order against your salary.
Let’s remember our rules to being financially Well:
Rule 2: Bad Debt: Never borrow to buy anything that depreciates in value.
“Spending more on debt and interest while losing on the capital value is what keeps most people poor.
Buying goods now - on credit - will make the “Future-You” poorer. If you buy with cash what you can afford today, “Future-You” gets the benefit, but not the costs.
The cause of bad debts is the failure to differentiate between your needs and your wants. Controlling your expenses is a big challenge, but remember: buying something only gives you temporary pleasure.
Always ask yourself whether you really need the item, or whether you’d get more pleasure from experiences.” Remember: commit yourself to your debt schedule. Always make your repayments on time, and you will Get Out of Debt!
Author: Tshepiso Kgakatsi – Financial Wellness Trainer © S.C.I. Training run financial wellness programmes and money counselling in Botswana. For help and information contact them on 3180243, 72309718 or money@wellness.co.bw